The IRS recently released Notice 2024-80 outlining adjustments to retirement plan contribution limits for 2025. As we move into the new tax year, small and mid-sized business owners should take note of these updates, as they present new opportunities for employees and employers alike to boost retirement savings.
Increased Contribution Limits for 401(k) Plans
For 2025, the IRS has raised the annual contribution limit for 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan:
- Employee Contribution Limit: Increased from $23,000 in 2024 to $23,500 in 2025.
- Catch-Up Contribution for Individuals Aged 50+: Remains unchanged at $7,500.
- Secure 2.0 Catch-Up Contribution for Individuals Aged 60-63: $11,250 for 2025.
This means individuals aged 50 and older can now contribute up to $31,000 to their accounts, helping older employees boost their savings as they approach retirement.
IRA Contribution Limit Unchanged
The annual contribution limits for IRAs remains the same at $7,000 in 2025, and the catch-up contribution for individuals aged 50+ is $1,000.
Income Limits for Roth IRA Contributions
For those with higher incomes, the ability to contribute to a Roth IRA is subject to adjusted gross income (AGI) limits. For 2025, the new phase-out ranges for Roth IRA eligibility are as follows:
- Single and Head of Household Filers: Phase-out range increased to $150,000 – $165,000.
- Married Filing Jointly: Phase-out range increased to $236,000 – $246,000.
This means that individuals within these income brackets will have a reduced ability to contribute to a Roth IRA, while those earning above the maximum range will not be able to contribute at all.
SEP and SIMPLE IRA Contribution Limits
For small business owners who use Simplified Employee Pension (SEP) and Savings Incentive Match Plan for Employees (SIMPLE) IRAs, the contribution limits for 2025 have also been adjusted:
- SEP IRAs: The contribution limit for SEP IRAs has increased to $70,000, up from $69,000 in 2024.
- SIMPLE IRAs: The employee contribution limit for SIMPLE IRAs has increased to $16,500 and the catch-up contribution for those aged 50+ remains $3500.
These increases make SEP and SIMPLE IRAs more attractive for small businesses looking to provide retirement benefits with higher contribution ceilings for employees.
Defined Benefit Plan Limits
For businesses offering defined benefit plans, the maximum annual benefit limit has increased to $280,000, up from $275,000 in 2024. Defined benefit plans, typically more common among larger organizations, allow for higher contribution limits, offering business owners another way to boost retirement savings for themselves and their employees.
Health Savings Account (HSA) Contribution Limits
Although not directly related to retirement, the IRS has also adjusted the contribution limits for Health Savings Accounts (HSAs), which can be a valuable component of retirement planning:
- Individual Contribution Limit: Increased to $4,300.
- Family Contribution Limit: Increased to $8,550.
- Catch-Up Contribution for Individuals Aged 55+: Remains at $1,000.
Considerations for Small Business Owners
These updates present planning opportunities for small business owners, both for personal retirement planning and for enhancing employee benefits. Here are a few ways to leverage these changes:
- Encourage Higher Employee Contributions: With increased 401(k) and IRA limits, you can help employees understand the benefits of saving more for retirement.
- Evaluate Retirement Plan Offerings: If your business doesn’t currently offer a retirement plan, consider implementing a SIMPLE or SEP IRA plan, which has straightforward setup processes and higher contribution limits than traditional IRAs.
- Maximize Employer Contributions: The new limits allow you, as a business owner, to contribute more towards your own and your employees’ retirement savings, potentially offering tax benefits as well.
- Plan for Catch-Up Contributions: For business owners aged 50 and older, making the most of catch-up contributions can be a step towards bolstering retirement funds.
A New Year, A New Opportunity
The new IRS retirement plan limits offer small business owners and their employees a fresh opportunity to maximize retirement contributions and secure a financially sound future. If you have questions, reach out to understand how these changes can impact your specific tax and retirement planning strategies. With a proactive approach, you can make the most of these updated limits and set your business up for continued growth and success.